Construction Law

1. Chapter Two
Contract Laws
Lecture by: Andualem Endris (M.Sc)
School of Engineering and Technology
Construction Technology and Management Department
Madawalabu
University
Construction Law
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2. Definitions
• Contract is a written agreement enforceable at law
between or among two or more parties whereby each
party promises to do or not to do something and agrees
to terms (conditions and warranties) set out in the
contract.
• Conditions of Contract are terms in which parties in the
contract are governed.
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3. Contract Requirements
• Parties are capable of contracting: Lawful and
Capable
• Consent of contracting parties is necessary:
Intent
• Object of the contract is sufficiently defined,
possible and lawful: Legal and Distinct
• Use of Contract form prescribed by law, if any:
Standard
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4. … continued
• Payment for the Promise: Consideration
• Constitute two parts: Offer and
Acceptance
• Parties enter into Agreement: Agreement
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5. … continued
 Lawful and Capable is to mean they are legally
allowed to enter into contract and provides
statements of facts and obligation.
 Intent is willingness or consent by the
contracting parties to create a legal contract.
 Legal and Distinct is a description of both the
promises and considerations
 Standards can be conditions, forms, formats,
schedules, instructions, etc
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6. … continued
• Consideration can simply be interpreted
as ‘price for the promise’ which involves a
benefit.
• Offer is an indication that one party is
willing to be bound by specific terms set
out in the contract.
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7. … continued
• Acceptance is the key for the formation of
a contract which must be absolute
indication of consent.
• Agreement though proves the existence
of a contract; there are situations where it
can be considered as there isn’t.
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8. National Contract Laws:
The Ethiopian Context
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9. I should find
the employer
weakness in
the contract
to submit
claims.
I have the
contract with
modified conditions
as we required for
our convenience, it is
legal, since agreed
and signed by the
parties Different Point of View
Contract Laws
Employer
Contractor
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10. National Contract Laws:
The Ethiopian Context
• The local construction contract includes:
1. The Law of Administrative Contract (Civil
Code of Ethiopia);
2. The MoWUD Standard Conditions of
contract for Civil work Projects (Ministry of
Urban Development and Construction); and
3. The PPA Conditions of Contract (Public
Procurement Agency).
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11. 1. The Law of Administrative
Contract
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12. Administrative Contract
• An administrative contract is a special type of
contract, recognized under the Civil Code of
Ethiopia.
• It is separately regulated under Article 3131-
Article 3306 of the Civil Code.
• It is a contract to be signed between a public
(government) authority & a private party.
• Definition: See Article 3132 for the definition
of Administrative Contract under the Civil
Code.
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13. Administrative Contract
(Continued)
• Administrative contracts have the following types:
– Concession of Public Services; (see Article
3207-Article 3243);
– Contract of Public Works; (see Article 3244-
Article 3296); and
– Contract of Supplies; (see Article 3297-Article
3206);
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14. Administrative Contract
(Continued)
• The very feature of an Administrative Contract is that
the balance of the said contract is tilted towards the
public authority.
• This imbalance of the contract is legally justified on
the basis of public interest.
• Therefore, the whole theory of the law of
administrative contract is based on balancing the
interest or profit motive of the individual on one
hand, and the interest of the general good on the
other, of which by far the important is that of the
public good.
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15. 2. The MoWUD Standard
Conditions of Contract
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16. The MoWUD Standard
Conditions of Contract
• Officially, known as “Standard Conditions of Contract
for Construction of Civil Work Projects”.
• It has been in practice since December, 1994.
• It contains 75 clauses including Forms & Formats.
• Its structure & content resembles that of FIDIC
Standard Conditions of Contract for Civil Engineering
Works, Fourth Edition, 1987.
• It is based on Design-Bid-Build (DBB) Project
Delivery System.
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17. The MoWUD Standard Conditions of
Contract (Continued)
• The type of contract is based on bill of quantities i.e. it is
an Admeasurements contract type (see Clauses 55-57).
• The role of the Engineer is envisaged & maintained.
• The general framework of the said conditions of contract
includes the following items:
• definitions & interpretation;
• engineer & engineer’s representative;
• assignment & subletting (of the construction
contract);
• contract documents;
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18. The MoWUD Standard Conditions
of Contract (Continued)
• general obligations (of the contractor);
• provision of labour, materials & workmanship;
• commencement time & delays;
• maintenance & defects, alterations;
• additions & omissions;
• plant, temporary works & materials;
• measurement;
• provisional sums;
• nominated subcontractors;
• certificate & payment;
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19. The MoWUD Standard Conditions
of Contract (Continued)
• remedies & power(in case of the default of the
contractor);
• special risks (of the employer);
• Frustration (of the contract);
• settlement of disputes (by arbitration);
• notices;
• default of the employer;
• changes in costs & legislation; and
• others.
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20. 3. The PPA Conditions of
Contract
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21. PPA Conditions of Contract
• The PPA, under its legal mandate provided under The
Public Procurement Proclamation, it has prepared &
issued certain standard tender & contract documents for
the purpose of public procurement.
• The conditions of contract are applicable to the
procurements of the federal government.
• The Standard Conditions of Contract cover the following
types of procurement.
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22. PPA Conditions of Contract
(Continued)
• These are Standard Conditions of Contract for
the procurement of:
• Consultancy Services;
• Non-consultancy Services;
• Works;
• Goods;
• Including Simple Request for Quotations &
Local Purchase Order.
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23. Procurement of Works
– The Standard Conditions of Contract for the
purpose of the procurement of Works have
been prepared separately for:
• International Competitive Bidding (ICB);
and
• National Competitive Bidding (NCB).
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24. Procurement of Works (Continued)
• The conditions of contract are based on Design-Bid-Build
project delivery system.
• The type of contract is based on BoQ, in which case it
becomes measurement based.
• Or based on Activities Schedule, in which case it
becomes lump sum.
• The role of the engineer is envisaged.
• The documentation of PPA is divided in to three parts,
namely,
• Bidding Procedure;
• Schedule of Requirements; and
• Contract Conditions.
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25. 1. Bidding Procedure
• Under Bidding Procedure, the followings are included,
namely:
• Section 1 Instruction To Bidders (ITB):
– General;
– Bidding Documents;
– Preparation of Bids;
– Submission of Bids;
– Bid Opening & Evaluation;
– Award of Contract.
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26. Bidding Procedure (Continued)
• Section 2 Bid Data Sheet (BDS)
• Section 3 Evaluation & Qualification Criteria (EQC)
– Average Annual Volume of Construction Work;
– Experience as Prime Contractor;
– Acquisition of essential Equipment( by way of
ownership, hire or lease);
– Personnel;
– Liquid Assets and/or Credit Facilities;
– The issue of Joint Venture;
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27. Bidding Procedure (Continued)
• Section 4 Bidding Forms:
– Bid Submission Form;
– Priced Schedules (BoQ or Schedule of
Activities);
– Bid Security;
– Qualification Information.
• Section 5 Eligible Countries
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28. 2. Schedule of Requirements
• Under Schedule of Requirements:
• Section 6 Schedule of Requirements
– Scope of Works;
– Technical Specification;
– Drawings;
– Bill of Quantities or Activity Schedule.
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29. 3. Contract Conditions
• The PPA Contract Condition includes:
• Section 7 General Conditions of Contract (GCC)
• The GCC is composed of 62 Clauses.
• It contains the following parts:
– General; (Clause 1-Clause 26)
– Time Control; (Clause 27-Clause 32)
– Quality Control; (Clause 33-Clause 36)
– Cost Control; (Clause 37-Clause 54)
– Finishing the Contract; (Clause 55-Clause 62).
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30. Contract Conditions (Continued)
– General
• This section includes: definitions, interpretations,
language & law, engineer’s decision, delegation,
communications, sub-contracting, other
contractors, personnel, employer’s & contractor’s
risks, insurance, site investigation reports, queries
about the special conditions of contract, contractor
to construct the works, the works to be completed
by the intended completion date, approval by the
engineer, safety, discoveries, possession of site,
access to site, instructions, disputes, procedure for
disputes, replacement of adjudicator.
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31. Contract Conditions (Continued)
• Time Control
• This section includes the following items: program,
extension of the intended completion date,
acceleration, delays ordered by the engineer,
management meetings, and early warning.
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32. Contract Conditions (Continued)
• Quality Control
• This section includes the following items:
identifying defects, tests, correction of defects,
uncorrected defects.
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33. Contract Conditions (Continued)
• Cost Control
• This section includes the following items: BOQ or
activity schedule, change in the BOQ or activity
schedule, variations, payment for variations, cash
flow forecasts, payment certificates, payments,
compensation events, tax, currencies, price
adjustment, retention, liquidated damages, bonus,
advance payment, securities, day works, and cost
of repairs.
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34. Contract Conditions (Continued)
• Finishing the Contract
• This section includes the following items:
completion, taking over, final account, operating &
maintenance manuals, termination, payment upon
termination, property, and release from
performance.
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35. Contract Conditions (Continued)
• Section 8 Special Conditions of Contract (SCC)
• Section 9 Contract Forms
– Agreement;
– Bank Guarantee;
– Performance Bond;
– Advance Payment Guarantee;
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36. 2.2 International
Contract Laws

37. International Construction Laws
(Continued)
• This part section deals with international construction
contract based on the FIDIC Conditions of Contract.
• FIDIC: Federation Internationale des Ingenieurs-
Conseils: a French acronym interpreted in English as
International Federation of Consulting Engineers
• This condition of contract has been approved by all
major international financial and development
institutions.
• FIDIC represents the consulting engineering industry
both globally and domestically.
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38. FIDIC Forms of Contract
• The forms of contract are drafted for use on a wide
range of project types.
• The main forms are differentiated by the colour of
their covers.
• The choice of form depends on the type of project
being contemplated.
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39. FIDIC Forms (Continued)
• Employer designed (traditional project) - Red Book
• Contractor designed (traditional project) - Yellow Book
• EPC/Turnkey project - Silver Book
• Employer designed (Multilateral Development Banks
providing finance) - Pink Book
• Straight forward, quick or cheap project - Green Book
• Design, build, operate project - Gold Book
• Subcontracts - Colorless Book
• The FIDIC Contracts Guide (2000)
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40. The Red Book
(Conditions of Contract for Construction)
• The 1999 Conditions of
Contract for
Construction: The
Construction Contract
(The New Red Book)
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41. The Red Book (continued)
• For building and engineering works designed
by the Employer
• Needs of modern multi-discipline contracts
recognised
• Valuation and payment based on
remeasurement of quantities
• No ‘Clause 67’ Engineer’s decision
• If a dispute arises, reference to DRB (Dispute
Review Board)
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42. The Yellow Book
(Conditions of Contract for Plant and Design-Build)
• ’Conditions of Contract for
Plant and Design-Build
for Electrical and
Mechanical Plant and for
Building and Engineering
Works, Designed by the
Contractor’ (the plant and
design/ build contract)
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43. The Yellow Book (Continued)
• 1999 Yellow Book replaced both 1987 Yellow
Book and Orange Book
• Traditional competitive tendering procedures
• Risk sharing is balanced
• All claims, from either Party, have to follow a
strict procedure
• Engineer is no longer stated to be ‘impartial’:
he ‘shall be deemed to act for the Employer’,
except when fair determinations are required
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44. The 1999 Yellow Book (Continued)
• Needs of modern multi-discipline
contracts recognised
• Partial Employer design: include in
Employer’s Requirements
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45. The 1999 Yellow Book (continued)
• Valuation and payment based on lump
sum with payment plan, but
remeasurement possible
• No ‘Clause 67’ Engineer’s decision
• If a dispute arises, reference to DRB
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46. The Silver Book
(Turnkey Contract)
• Conditions of
Contract for
EPC/Turnkey
Projects: The
Turnkey Contract
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47. The Silver Book
(Turnkey Contract)
• More certain final price and time required
- balance of risk being changed
- privately financed BOT type
• Contractor asked to cover extra risks
• Employer will have to pay more
• Completely new Book - ‘unbalanced’ risk
• BUT full open acceptance of risk picture
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48. The Silver Book (continued)
• The EPC (Engineer-Procure-Construct)
Contract is suitable for:
particularly E&M and process plant
projects
all types of Employers
civil law jurisdictions
where government employer or private
developer wants a fixed price turnkey
basis and two-party approach
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49. The Green Book
(Short Form of Contract)
• Short Form of
Contract: The Short
Form
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50. The Green Book
(Short Form of Contract)
• US$ 500,000 and six months’ duration
• Simple and repetitive works
• All provisions necessary in 15 clauses
• Language uncomplicated and simple
• Balanced risk sharing - no Engineer
• Design by either party - all types of
construction
• Payment on lump sum or any other basis
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51. The Gold Book
(Design, Build and Operate Projects)
• Conditions of
Contract for Design,
Build and Operate
Projects
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52. The Gold Book
(Continued)
• Conditions of Contract for Design, Build
and Operate Projects (Gold Book), First
Edition 2008
• Assumes ~20-year operation period
• Modern approach to risk and insurance
• Employer’s Representative
• Adjudication by DRB, then arbitration
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53. The Pink Book
(MDB Harmonized Edition)
• It is drafted for use on
projects that are funded
by Multilateral
Development Bank
(MDBs), which are
supranational institutions
such as the World Bank,
where the Red Book
would otherwise have
been applicable.
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54. The Pink Book
(Continued)
• Based on 1999 Red Book
• Incorporates main common changes
normally required by MDBs, e.g.- audits,
labour provisions, corruption avoidance,
dispute settlement
• Use subject to Licence Agreement
between FIDIC and participating banks
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55. The Colourless Book
(Subcontracts)
• Conditions of Subcontract for Construction
• Intended for use with 1999 Red Book
• General Conditions – Particular Conditions
• Annexes require provision of relevant
information
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56. Assignment 1
1. Please define the following terms from the PPA,
MoWUD and FIDIC 1999 (The Red Book) conditions of
contract:
• Engineer and Engineer’s Representative
• Joint Venture
2. What is liquidated damage? Describe the amount
stated in PPA, MoWUD and FIDIC 1999 (The Red
Book) conditions of contract.
3. What is variation? Please compare variation order
clauses stated in PPA, MoWUD and FIDIC 1999 (The
Red Book) conditions of contract.
Submission Date: 19th November 2016.
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